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Federal Aid for the Local Economy

I’m off work until the end of the year, but my friends in the budget office are working hard to try to figure out how to cut the city operating budget by 10% because the state will likely cut local aid by that amount. The state has already made cuts in things like pay raises for direct care workers – the folks who provide care for the disabled and elderly who work for non-profits. Some of our affordable rental housing construction is not beining constructed because there is no funding either from loans or from tax credits. I think state and local workers may be laid off before this crisis ends. And, jokes about inefficient govenerment workers aside, do we really need more people with skills and education, unemployed?

Paul Krugman wrote about all this in Fifty Herbert Hoovers. I know that the governors I know, Deval Patrick and Tim Kaine, do not like the comparison. I’m sure they understand that cutting spending right now is the worst thing they could do but as Krugman explains

In fact, the true cost of government programs, especially public investment, is much lower now than in more prosperous times. When the economy is booming, public investment competes with the private sector for scarce resources — for skilled construction workers, for capital. But right now many of the workers employed on infrastructure projects would otherwise be unemployed, and the money borrowed to pay for these projects would otherwise sit idle.

And shredding the social safety net at a moment when many more Americans need help isn’t just cruel. It adds to the sense of insecurity that is one important factor driving the economy down.

So why are we doing this to ourselves?

The answer, of course, is that state and local government revenues are plunging along with the economy — and unlike the federal government, lower-level governments can’t borrow their way through the crisis. Partly that’s because these governments, unlike the feds, are subject to balanced-budget rules. But even if they weren’t, running temporary deficits would be difficult. Investors, driven by fear, are refusing to buy anything except federal debt, and those states that can borrow at all are being forced to pay punitive interest rates.

I agree that the state and local governments need help. Funds to help pay for construction projects, funds for social service programs, funds to help pay for health care and unemployment. And now for my rant. But those funds need to have less rigid guidelines than normal Community Development Block Grant (CDBG) and other federal programs. If AIG, Citi Bank, and the other large lending institutions have no oversight or reporting requirements, state and local governements have too many. Take the new Neighborhood Stabilization money which is to help purchase, rehab and otherwise get foreclosed properties back online. I will have to learn an entirely new federal reporting system (the email I got with my password says that there are “navigational problems” with the system) and monitor owners and renters for the next 10 to 15 years, with no increase in staff or administrative costs past the first 3 years. Does this make any sense?

Krugman again

What can be done? Ted Strickland, the governor of Ohio, is pushing for federal aid to the states on three fronts: help for the neediest, in the form of funding for food stamps and Medicaid; federal funding of state- and local-level infrastructure projects; and federal aid to education. That sounds right — and if the numbers Mr. Strickland proposes are huge, so is the crisis.

I agree with Governor Stickland with one addition: money should also go into mass transit and intercity highspeed rail. This could be part of the green solution at the same time.

If you also want to see and hear Paul Krugman, he was on the Rachel Maddow show.